UPDATED: On the cusp of spinning off WarnerMedia — ending AT&T’s ill-fated foray into the entertainment biz — telco chief CEO John Stankey touted the company as getting into fighting shape to succeed in its core wireless and broadband sectors.
AT&T released updated financial guidance on Friday ahead of its investor day presentation, fleshing out its post-WarnerMedia strategic priorities. Separately, Discovery shareholders also Friday voted to approve the $43 billion merger with WarnerMedia, putting it on a path to close as soon as mid-April after the deal won U.S. regulatory clearance last month.
“Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T,” Stankey said in prepared remarks. “The transformation we’ve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. We will be a simpler, more focused company with the intent to become America’s best broadband provider.”
AT&T plans to boost investment in its strategic areas of growth — 5G and fiber — and “at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders,” Stankey said.
With the spinoff of WarnerMedia and combination with Discovery, AT&T will receive $43 billion and AT&T shareholders will receive stock representing approximately 71% of the new Warner Bros. Discovery. Existing Discovery shareholders will own approximately 29% of the new company on a fully diluted basis.
As previously disclosed, AT&T expects to deliver just over $8 billion in cash via annual total dividends to shareholders after the close of the WarnerMedia-Discovery transaction. AT&T expects the May dividend to be paid according to the previously announced annual common dividend amount at $1.11 per share, given “expectations that the WarnerMedia transaction will close in early second quarter,” the company said.
In the past year, AT&T has also moved to shed other non-core assets. That included inking a deal to sell Xandr to Microsoft in December 2021; selling WarnerMedia’s Playdemic mobile games app studio to EA for $1.4 billion; selling Vrio, AT&T’s Latin America video operations; closing a deal July 2021 with TPG to form DirecTV Entertainment Holdings, comprising the telco’s U.S. video business (including DirecTV, AT&T TV and U-verse video services); and selling the Crunchyroll anime business in Q3 2021 to Sony for $1.2 billion.
During its investor day presentation, AT&T reiterated its 2022 outlook and provided financial guidance for 2023, on a pro-forma basis excluding WarnerMedia and Xandr.
For 2022, AT&T expects “low single-digit” revenue growth up from $118.2 billion on a pro-forma basis in 2021, driven by at least 3% growth in wireless service revenue and at least 6% growth in broadband revenue. It forecast adjusted EBITDA of $41 billion-$42 billion, compared with $40.3 billion on a pro forma basis in 2021, even with about $600 million in “headwinds” from 3G network shutdown costs and the absence of credits from the FCC’s Connect America Fund (CAF) II. AT&T expects adjusted earnings per share of $2.42-$2.46, versus EPS of $2.41 on a pro-forma basis in 2021.
For 2023, the company forecast continued low single-digit growth on the top line; adjusted EBITDA of $43.5 billion-$44.5 billion, including approximately $1.5 billion in additional “cost transformation savings”; and adjusted EPS of $2.50-$2.60.
Capital investment in the $24 billion range, including about $5 billion to deploy 5G spectrum, compared with $20.1 billion on a pro forma basis for 2021.
Other projections AT&T disclosed:
The company expects to reach $6 billion in annual run-rate cost savings by the end of 2023, stemming from transition from copper networks to fiber and 5G and streamlining operations in areas like corporate G&A, supply chain and technology platforms.
AT&T plans to double its fiber footprint to more than 30 million locations, by adding 3.5 million-4 million customer locations per year, and expanding its 5G network by deploying 120 MHz of mid-band spectrum to cover more than 200 million people by the end of 2023 (in addition to its existing 5G footprint, which covers more than 255 million people in the U.S.).
By 2025, AT&T expects that 75% of its network footprint will be served via fiber and 5G and that it will have reduced its copper services footprint by 50%.
AT&T expects capital investment in the $24 billion range in 2022 and 2023 (up from $20.1 billion on a pro-forma basis for 2021), before tapering down to the $20 billion range starting in 2024. For this year, capex will include about $5 billion to deploy 5G spectrum.
The company continues to expect to use free cash flow (post dividends) to reduce its net-debt-to-adjusted-EBITDA ratio to the 2.5X range by the end of 2023 — down from 3.22X at the end of 2021.
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